Looking for Advice

My wife inherited some money about a year and a half ago. Altogether we currently have around 1.85 million dollars liquid(we're 30 years old). Unfortunately, during the deleveraging process that occurred last year I ended up losing around 170K. I bought a few commodity related etf's as a hedge against the falling dollar(we also had some blue chip stocks that came with the inheritance). These were meant to be long term holdings but I lost my cool because of the large amount involved. Also there was an emotional aspect to this issue because it was my wife's deceased parent's money(1/8 of the money is mine btw). Now I've been somewhat paralyzed ever since- afraid to lose more-my tolerance is very low. And seeing the dollar crater again and the markets bouncing back up is driving me nuts while I sit mostly in cash.

Because of my low tolerance, I've tried scalping a bit with FAS/FAZ placing $10K - $20K orders at a time. But it's not easy to stick to rules. I'd be happy making $400 a day doing this.

As I read in another thread, Im thinking the only way I will be able to trade is to setup the entry, exits and stops and step away and forget about the holding and only check periodically and pray that I average out on the positive side. I don't think I'll ever be able to be a buy and hold investor again after what happened(except for the gold and silver coins I own and never plan on selling). The thing is that I took a voluntary separation package some time ago and I have time to actively trade. I'm not particularly excited to go back to the corporate world working as a programmer but may have to because I'm not producing money right now. My wife has a good job so I can theoretically not work for a long time.

So I guess my question is what should I do? My father tells me to buy investment real estate and collect rent - but I think NYC/NJ real estate is overpriced. My father bought a building for 30K in brooklyn in the 1970's which is now worth about a million and netting around 60K - 70K a year. So he's a big proponent of real estate.
I've actually thought of relocating somewhere cheap like Texas - buy a house with cash for 200K-300K and then trade with whatever money is left over(and not have to pay state taxes with investment gains). At least I'll know that I own something tangible and that it's not wildly overpriced like in the NYC metro area.

Some other questions I have are -
Where do people generally place their sell stops? 5% 10% 15% below? I guess it depends on beta- volatility and personal tolerance levels? I guess beta would apply to targets, exits too? Should I use trailing stops instead?

Does it make any sense to trade futures? Commodity futures seems a lot more efficient compared to commodity etfs but I'd rather not touch margin accounts. All my accounts are cash. My friend got wiped out with margin twice although I think I would have more self control.

We have a broker that's been hounding us to buy the past few weeks and get us into a managed account - I can't stand those assholes so don't suggest to me to get one(even if they're right once in a while). Although I do agree with him that I need to diversify soon. I'm still convinced though that SPY is topping right now.

First, consider yourself very fortunate that past generations decided to basically set you up financially at a very early age.

Second, lets be realistic. Based on your recent market activities and the questions you are asking you do not yet have the skill, knowledge or emotional intelligence to trade for income. Investing does not equal trading hence you might be better served dabbling in self guided investment decisions on a small scale until you gain the necessary experience to invest serious money. The best advice I can give is that you preserve wealth above all else and listen to that voice telling you to stay away from the markets. That voice is right.

Fast foward 3-5 years: you've traded/invested with very small sums of money and managed to learn a thing or two. Your gains are greater than your losses and you are ready to take on trading with a larger amount of capital. Now you might be in a position to trade for income given you acquired the proper skill set.

For now, take 10k and get to work, but don't lose more than that 10k! Generate ideas, keep track of your trades, do self- analysis during challenges etc. It is going to take 5 years to learn what you need to learn, make sure it costs you as little as possible. Look into hedge funds, do research on the various strategies (I like alternative investments myself) and sign up to the hedge fund database sites. Invest in the funds that you deem quality while you're learning to invest/trade. For now its best to let the pro's trade for you - good HF managers that is!!! Remember, brokers/financial adivsors are not traders - they are middlemen who add zero value. As Anaconda said - stay away!

First, consider yourself very fortunate that past generations decided to basically set you up financially at a very early age.

Second, lets be realistic. Based on your recent market activities and the questions you are asking you do not yet have the skill, knowledge or emotional intelligence to trade for income. Investing does not equal trading hence you might be better served dabbling in self guided investment decisions on a small scale until you gain the necessary experience to invest serious money. The best advice I can give is that you preserve wealth above all else and listen to that voice telling you to stay away from the markets. That voice is right.

Fast foward 3-5 years: you've traded/invested with very small sums of money and managed to learn a thing or two. Your gains are greater than your losses and you are ready to take on trading with a larger amount of capital. Now you might be in a position to trade for income given you acquired the proper skill set.

For now, take 10k and get to work, but don't lose more than that 10k! Generate ideas, keep track of your trades, do self- analysis during challenges etc. It is going to take 5 years to learn what you need to learn, make sure it costs you as little as possible. Look into hedge funds, do research on the various strategies (I like alternative investments myself) and sign up to the hedge fund database sites. Invest in the funds that you deem quality while you're learning to invest/trade. For now its best to let the pro's trade for you - good HF managers that is!!! Remember, brokers/financial adivsors are not traders - they are middlemen who add zero value. As Anaconda said - stay away!

You can PM me of you have any questions.

Mike

More...

Mike -
Is a hedge fund really worth it? 2 and 20 and limitations on redemptions? Plus, didn't a lot of them do poorly last year? So much for the "hedge" in hedge funds. Also, the leverage they use freaks me out. I would be more nimble than these behemoths when liquidating or buying in.

And aren't the entry minimums really high? I don't want to commit a high percentage of my net worth in a potential LTCM or Amaranth.

Thanks for the advice(seriously) - if you're willing to - please send me a PM of any hedge fund reccomendations.

When you say liquid - do you mean american dollars? That's where I am right now. The precipitous decline of the USD index has really bothered me. But I guess what I'm really concerned about is beating inflation. Have debated whether or not to put my cash in another currency. I do hold gold and silver and thinking of adding DBA and UNG.

Mike -
Is a hedge fund really worth it? 2 and 20 and limitations on redemptions? Plus, didn't a lot of them do poorly last year? So much for the "hedge" in hedge funds. Also, the leverage they use freaks me out. I would be more nimble than these behemoths when liquidating or buying in.

And aren't the entry minimums really high? I don't want to commit a high percentage of my net worth in a potential LTCM or Amaranth.

Thanks for the advice(seriously) - if you're willing to - please send me a PM of any hedge fund reccomendations.

More...

Your private messaging is disabled. Enable it and I'll send you a detailed response. I'll answer here what I can.

2/20 is a stock number thrown out by many FOF's and the traditional "hedge" funds. The traditional hedge funds are likely what you're referring to and as whole did not do well last year nor are they doing that well this year. I'd stay away from these as many are overweight and their performance doesn't justify the fees. Global Macro, Long/Short Equity, Fixed Income blah blah blah, all these types of funds fall into the traditional fund category and the 2/20 fee structure, high minimum investment, etc. These funds are not worth my time and they likely won't be worth yours either as like I said, the performance and reward of these types of funds do not justify the risk.

What I look for are CTAs/Fund Managers with track records and *low* AUM. Sub 10mil. These types of funds generally have very specific edges (discretionary/systemic) and fall under the radar of many of the larger institutions. Their account mins are low and the managers are hungry to perform. Obviously you have to have some serious background knowledge to spot a poor strategy in such cases (a lot of these funds go bust as well), but, if you know what look for, the investment is as risky/safe as any other with what I believe to be higher potential reward.

That's all I'll say in public but I can PM you more info, send me a PM and we'll work from there.

Also, consider you never want more than 25-30% of your net worth (this depends on your age, if you're young I'd go higher) in any one asset class (alternative investments being such an asset class) so this sounds like the most feasible thing for you to look into.

4. Once you have the money socked away in some secure CD's or money market account ... get your ass back to work (it really isn't that hard, now is it?).

5. When you've got more money than you know what to do with, start gambling with the money you make from your job (while you both live off of her income, and your group inheritance is safe and sound).

Position trade, learn how to trade options, learn how to develop automated trading systems, hell, who cares, just do it with money that is designated as "play money".
***"It is better to be lucky than smart, and you've been very lucky indeed."